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PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS | 3 Months Ended
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Mar. 31, 2019
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS |
PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS | NOTE G – PENSION AND OTHER POSTRETIREMENT BENEFIT PLANS Nonunion Defined Benefit Pension, Supplemental Benefit, and Postretirement Health Benefit Plans The following is a summary of the components of net periodic benefit cost:
|  | Three Months Ended March 31 |
|  | Nonunion Defined |  | Supplemental |  | Postretirement |
|  | Benefit Pension Plan |  | Benefit Plan |  | Health Benefit Plan |
|  | 2019 |  | 2018 |  | 2019 |  | 2018 |  | 2019 |  | 2018 |
|  | (in thousands) |
Service cost |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | 80 |  | $ | 92 |
Interest cost |  |  | 318 |  |  | 1,015 |  |  | 10 |  |  | 27 |  |  | 303 |  |  | 209 |
Expected return on plan assets |  |  | (90) |  |  | (401) |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of prior service credit |  |  | — |  |  | — |  |  | — |  |  | — |  |  | (9) |  |  | (23) |
Pension settlement expense |  |  | 1,356 |  |  | 654 |  |  | — |  |  | — |  |  | — |  |  | — |
Amortization of net actuarial loss(1) |  |  | 149 |  |  | 778 |  |  | 24 |  |  | 20 |  |  | 225 |  |  | 76 |
Net periodic benefit cost |  | $ | 1,733 |  | $ | 2,046 |  | $ | 34 |  | $ | 47 |  | $ | 599 |  | $ | 354 |
| (1) |  | The Company amortizes actuarial losses over the average remaining active service period of the plan participants and does not use a corridor approach.
Nonunion Defined Benefit Pension Plan In November 2017, an amendment was executed to terminate the nonunion defined benefit pension plan with a termination date of December 31, 2017. In September 2018, the plan received a favorable determination letter from the IRS regarding qualification of the plan termination. Benefit election forms were provided to plan participants during the fourth quarter of 2018 and participants could elect any form of payment allowed by the plan for immediate commencement of payment or defer payment until a later date. The plan began distributing immediate lump sum benefit payments related to the plan termination in fourth quarter 2018 and continued making these distributions in first quarter 2019. The plan received an extension from the Pension Benefit Guaranty Corporation (the “PBGC”) to allow additional time for the plan to administer the settlement of the remaining obligation for deferred benefits through the purchase of nonparticipating annuity contracts from insurance companies, which is expected to occur in second quarter 2019. The Company will make a cash contribution to the plan for the amount, if any, required to fund benefit distributions and annuity contract purchases in excess of plan assets. The Company recognized pension settlement expense as a component of net periodic benefit cost of the nonunion defined benefit pension plan for the three months ended March 31, 2019 of $1.4 million (pre-tax), or $1.0 million (after-tax), related to $14.9 million of lump-sum benefit distributions from the plan. For the three months ended March 31, 2018, pension settlement expense of $0.7 million (pre-tax), or $0.5 million (after-tax), was recognized related to $4.8 million of lump-sum distributions from the plan. Pension settlement charges related to the plan termination, including settlements for lump sum benefit distributions and annuity contract purchases will occur in second quarter 2019. Based on estimates as of March 31, 2019 using available actuarial information, second quarter 2019 nonunion pension settlement expense is estimated to be approximately $2.0 million, or $1.5 million after-tax, and cash funding could total approximately $6.0 million, although there can be no assurances in this regard. The final pension settlement charges and the actual amount the Company will be required to contribute to the plan to fund benefit distributions in excess of plan assets cannot be determined at this time, as the actual amounts are dependent on various factors, including the value of plan assets, the amount of lump-sum benefit distributions paid to participants, and the cost of the nonparticipating annuity contracts. Liquidation of plan assets and settlement of plan obligations is expected to be complete in second quarter 2019. The Company’s short-term rate of return assumption, net of estimated expenses expected to be paid from plan assets, utilized in determining nonunion defined benefit pension expense was lowered from 1.4% for first quarter 2019 to 0.0% for second quarter 2019, as estimated expenses expected to be paid from plan assets are expected to offset investment returns on plan assets which were held in money market mutual funds as of March 31, 2019. The following table discloses the changes in benefit obligations and plan assets of the nonunion defined benefit pension plan for the three months ended March 31, 2019:
|  | Nonunion Defined
|  | Benefit Pension Plan
|  | (in thousands)
Change in benefit obligations |  |  |  |
Benefit obligations at December 31, 2018 |  | $ | 33,373 |
Interest cost |  |  | 318 |
Actuarial gain(1) |  |  | (766) |
Benefits paid |  |  | (14,975) |
Benefit obligations at March 31, 2019 |  |  | 17,950 |
Change in plan assets |  |  |  |
Fair value of plan assets at December 31, 2018 |  |  | 26,646 |
Actual return on plan assets |  |  | 216 |
Employer contributions |  |  | — |
Benefits paid |  |  | (14,975) |
Fair value of plan assets at March 31, 2019 |  |  | 11,887 |
Funded status at period end(2) |  | $ | (6,063) |
Accumulated benefit obligation |  | $ | 17,950 |
| (1) |  | The plan recognized an actuarial gain on lump-sum distributions related to benefit elections for plan termination which had been included in the actuarial estimate for the annuity contract purchase as of the December 31, 2018 measurement date.
| (2) |  | Recognized within current portion of pension and postretirement liabilities in the accompanying consolidated balance sheet at March 31, 2019.
Multiemployer Plans ABF Freight System, Inc. and certain other subsidiaries reported in the Company’s Asset-Based operating segment (“ABF Freight”) contribute to multiemployer pension and health and welfare plans, which have been established pursuant to the Taft-Hartley Act, to provide benefits for its contractual employees. ABF Freight’s contributions generally are based on the time worked by its contractual employees, in accordance with the 2018 ABF NMFA and other related supplemental agreements. ABF Freight recognizes as expense the contractually required contributions for each period and recognizes as a liability any contributions due and unpaid. The 25 multiemployer pension plans to which ABF Freight contributes vary greatly in size and in funded status. Contribution obligations to these plans are generally specified in the 2018 ABF NMFA, which will remain in effect through June 30, 2023. The funding obligations to the pension plans are intended to satisfy the requirements imposed by the Pension Protection Act of 2006, which was permanently extended by the Multiemployer Pension Reform Act (the “Reform Act”) included in the Consolidated and Further Continuing Appropriations Act of 2015. Provisions of the Reform Act include, among others, providing qualifying plans the ability to self-correct funding issues, subject to various requirements and restrictions, including applying to the U.S. Department of the Treasury for the reduction of certain accrued benefits. Through the term of its current collective bargaining agreement, ABF Freight’s contribution obligations generally will be satisfied by making the specified contributions when due. However, the Company cannot determine with any certainty the contributions that will be required under future collective bargaining agreements for ABF Freight’s contractual employees. If ABF Freight was to completely withdraw from certain multiemployer pension plans, under current law, ABF Freight would have material liabilities for its share of the unfunded vested liabilities of each such plan. Approximately one half of ABF Freight’s total contributions to multiemployer pension plans are made to the Central States, Southeast and Southwest Areas Pension Plan (the “Central States Pension Plan”). As set forth in the 2018 Annual Funding Notice for the Central States Pension Plan, the funded percentage of the plan was 27.2% as of January 1, 2018. ABF Freight received a Notice of Critical and Declining Status for the Central States Pension Plan dated March 29, 2019, in which the plan’s actuary certified that, as of January 1, 2019, the plan is in critical and declining status, as defined by the Reform Act. Critical and declining status is applicable to critical status plans that are projected to become insolvent anytime within the next 14 plan years, or if the plan is projected to become insolvent within the next 19 plan years and either the plan’s ratio of inactive participants to active participants exceeds two to one or the plan’s funded percentage is less than 80%. As more fully described in Note I to the consolidated financial statements in Item 8 of the Company’s 2018 Annual Report on Form 10-K, ABF Freight’s multiemployer pension plan obligation with the New England Teamsters and Trucking Industry Pension Fund (the “New England Pension Fund”) was restructured under a transition agreement effective on August 1, 2018, which resulted in a related withdrawal liability for which ABF Freight recognized a one-time charge of $37.9 million (pre-tax) as of June 30, 2018. In accordance with the transition agreement, ABF Freight made an initial lump sum cash payment of $15.1 million in third quarter 2018 and the remainder of the withdrawal liability, which had an initial aggregate present value of $22.8 million, will be settled with monthly payments to the New England Pension Fund over a period of 23 years. In accordance with current tax law, these payments are deductible for income taxes when paid. As of March 31, 2019, the outstanding withdrawal liability totaled $22.5 million, of which $0.6 million and $21.9 million was recorded in accrued expenses and other long-term liabilities, respectively. The fair value of the obligation was $23.8 million at March 31, 2019, which is equal to the present value of the future withdrawal liability payments, discounted at a 3.9% interest rate determined using the 20-year U.S. Treasury rate plus a spread (Level 2 of the fair value hierarchy). The multiemployer plan administrators have provided to the Company no other significant changes in information related to multiemployer plans from the information disclosed in the Company’s 2018 Annual Report on Form 10-K.

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